Buying a property is a big step, whether you’re buying the property as an investment or as your first home. So, what happens if you change your mind?
When you agree to buy a home, you will sign a contract of sale. That contract is a legally binding document, meaning there is a point in the sale process where it’s too late to back out without facing consequences. When you buy property, those consequences are financial. It’s therefore crucial to ensure that you have sought advice from a qualified property conveyancer before you commit to the purchase.
While there are instances where you can back out of the contract, you’ll likely be left out of pocket. That’s why you need to understand what type of contract you’re signing your name to and whether or not you should have your property conveyancer add some conditions to protect you from losing all or part of your deposit if you change your mind. So, when you are buying a property, what is the point of no return?
When can you change your mind about buying a property?
That’s a complicated question as it all depends on your sale contract and your method of buying. When you buy at auction, your point of no return is when you raise your hand to make the winning bid; once it’s accepted, there’s no going back unless you want to lose your entire deposit.
But in a private sale, the question of when you can change your mind and back out of a purchase depends on whether you’ve signed an unconditional or conditional contract of sale.
What is an unconditional contract?
An unconditional contract is exactly what it sounds like; a contract of sale without any conditions. In an unconditional contract, there are no terms that will allow you or the seller to get out of the deal should any issues arise, such as the discovery of a pest issue. However, when you sign an unconditional contract, your state or territory may allow for a cooling-off period where you can get out of the contract with little or no financial consequences.
How long is a cooling-off period?
Each state and territory has its own rules regarding cooling-off periods.
NSW: You have five business days to get out of the contract, though you will forfeit 0.25% of the purchase price if you pull out of the sale.
VIC: You have three business days from the time you, not the seller, sign the contract. If you break the deal, you’ll forfeit $100 or 0.2% of the purchase price, whichever is greater.
QLD: The cooling-off period is five business days. If you back out of the contract, you forfeit 0.25% of the purchase price.
SA: A cooling-off period of two business days applies. If you decide not to go ahead with the purchase, you will likely lose $100 of your deposit.
WA: No cooling-off period applies in WA unless the buyer and seller have agreed to add a cooling-off period to the sale contract.
ACT: The cooling-off period is five business days. You will forfeit 0.25% of the purchase price if you back out of the deal.
NT: A cooling-off period of four business days applies without any financial consequences.
TAS: No cooling-off period applies to any sale of property in Tasmania.
What is a conditional contract?
Signing an unconditional contract is risky – it does not allow for any extenuating circumstances that may be out of your control. The risks associated with buying a property can be mitigated by having your property conveyancer insert clauses into the contract that will allow you to get out of the contract without losing your entire deposit.
Subject to pest inspection
By putting in a “subject to pest inspection” clause, you will be able to safely get out of the contract should a pest inspection prove evidence of pest infestations that would make the homeless desirable. For example, the presence of termites.
Subject to building inspection
Much like a pest clause, a “subject to building inspection” clause allows you to have the house inspected for serious or dangerous defects after placing your offer, meaning you could get out of the contract should the property fail inspection.
Subject to finance
It is common for a contract to include a “subject to finance” clause to allow you time to line up a home loan. And if, for whatever reason, your loan application is not approved, you can end the contract and still get your deposit back.
The pros and cons of a conditional contract
The biggest benefits of a conditional contract can include:
- Giving you time to arrange finance;
- Allowing you to be sure that the property is in good shape; and
- Ensuring that whatever conditions you add to the contract are met.
Put simply, you have more capacity to change your mind about buying the place without concerns about losing your entire deposit.
However, just because you want to put in specific stipulations doesn’t mean the seller has to agree to them. The seller might be firm about selling with an unconditional contract, leaving you with no room to negotiate. Often, the more conditions you ask for, or the more demanding the conditions are, the more likely the seller may reject your offer. You may find you have better luck by only submitting one additional clause, perhaps by getting your building inspections done before you make your offer and simply asking that the contract be subject to finance.
Writing the clauses
When inserting subjection clauses into a sale contract, the wording is very important as it should leave no room for interpretation. Contracts are legal documents, which is why you should always have a property conveyancer take care of the amendments and not take up an offer from the selling agent to reword the contract, as they will likely adjust the document to suit the seller, not you.
Are you in the process of buying a property and need help writing up your conditional contract? Talk to the team at Jim’s Property Conveyancing. Jim’s Property Conveyancing has offices in Victoria, NSW and QLD and can provide you with comprehensive advice and assistance moving through your property transaction. Please get in touch with our friendly and experienced staff on 13 15 46.